Byron Ellis: 6 costly misconceptions about financial planning

By Byron Ellis / Finance columnist

Published
2:18 pm CDT, Friday, April 10, 2020

Over the past few decades, I’ve seen a lot of financial advisers come and go. I have also seen consumers make what I thought were poor financial decisions when they did not have enough information to make a good and informed decision.

Today I want to share some things you need to know that can help you with your current financial planning relationship, or one that you may create in the future. After all, a good relationship with the right adviser may make a huge difference in you and your family’s lives.

MISCONCEPTION #1: I don’t need a financial adviser. All I need is a good money manager.

Money management, especially once you retire, is very important. However; we have seen poor decisions wreck good plans enough times to know that human beings are inclined to make bad choices about money.

Are you prone to moving all of your money to cash when the market falters? Could you get caught up in taking that dream vacation without analyzing how it would affect your long-term income? Those may be the wrong moves.

An objective third party financial adviser may help you make sound decisions about your financial life by helping you do more than just pick stocks and bonds.

MISCONCEPTION #2: Mutual funds are a safe and a good way to beat the market.

Mutual funds can be a great way to start your investing...low minimums...potential diversification...easy.

But a mutual fund can be your most expensive way to go. According to Investopedia, the average cost of a mutual fund is between 1.3% - 1.5%.

While potentially having larger minimum account sizes, low cost ETFs (Exchange Traded Funds) or portfolios where you actually hold the individual securities (vs. a mutual fund where you don’t actually hold the stock) could be a better option for you.

MISCONCEPTION #3: Any financial professional can help me.

A good financial adviser helping a young couple make the right decisions starting out their work life may make a meaningful difference by the time they reach retirement.

On the other hand, an older couple that has ten million dollars may also benefit from such a relationship, but the type of advice will be much different.

At this level, one needs a specialist. If you needed brain surgery you would not ask your primary care physician to operate on you. You need to treat your wealth the same way.

MISCONCEPTION #4: If I don’t see an expense on my statement I must not be paying it.

Beware of hidden costs and fees. Most investors have no idea what their investments costs are. It is your right and duty to know.

Before investing in anything, make sure you know the hidden costs such as management fees, 12b1 fees, trading costs, in addition to the management fee that you may pay your adviser directly.

MISCONCEPTION #5: It is OK to work with an adviser that has no team.

There are 3 reasons why you need to work with a team.

The first reason is something I mentioned earlier—specialty. As one’s wealth grows so does the expertise level required to manage one’s financial life. One person, as good as they may seem, cannot be an expert in all of the areas that you need.

The second reason is that you want your advisers to last beyond you. What happens if your adviser gets sick, disabled, or dies? A good team, where you have a relationship with multiple people in the organization, can help alleviate this concern and help keep you on track for multiple generations.

Finally, a third reason to choose a team is that the larger the organization that you are dealing with, the more favorable pricing and technology services you should be able to get.

MISCONCEPTION #6: Thinking you understand the fiduciary standard.

The word used for someone that is held to a standard of only providing advice that are in the best interest for you is a “fiduciary”. The truth is that not all financial professionals operate under the fiduciary standard.

When someone operates as your fiduciary, they are required to put your best interest first. Period. Not all financial professionals have been required to operate under the fiduciary obligation. This is a special relationship that only exists between a Registered Investment Advisor and you.

Know which mandate your financial professional has been operating under and choose someone that was your fiduciary before that was the “cool” thing to do.

Byron W. Ellis, CFP®, ChFC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President with United Capital, a Goldman Sachs Company. United Capital, a Goldman Sachs Company (“United Capital”), is an affiliate of Goldman Sachs & Co. LLC and subsidiaries of the Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. United Capital does not provide legal, tax or accounting advice. Clients should obtain their own independent legal, tax or accounting advice based on their particular circumstances.